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How to Get Peer-to-Peer Online Loans with Bad Credit

Peer to peer loans are a new type of online loans to get you money you need even on bad credit

I was working as a labor economist for the State of Iowa during the Great Recession. I saw first-hand how bad the recession was for people across the country, the double-digit unemployment and how banks shut everyone off from getting loans.

A decade later and the economy has rebounded but a lot of people are still shut out of the financial system. Credit scores have increased but banks still aren’t lending to a lot of people.

Enter peer-to-peer lending and a new way to get online loans.

Peer lending, or p2p, has been around since before the financial crash but it’s become a critical piece of the loan market since. In this article, I’ll start by showing you how the peer to peer loan system works and then how to get the money you need even with bad credit. I’ll also reveal the p2p sites I’ve used and compare online lenders.

What is Peer to Peer Lending?

Peer to peer (p2p) lending is simply a website for individuals to request a loan from funding sources outside of banks. Lenders and p2p investors are made up of everyday people throughout the United States who are willing to assume a portion of the loan.

For example, say “John” wants to borrow $10,000 dollars. He fills out an application on a peer-to-peer site like Prosper. The application is seen by thousands of p2p investors, regular people that want to invest in this new type of lending.

Money is pooled from various individuals, each assuming a percentage of the loan.  Say 20 people each agree to loan $500 at an interest rate of 14%, then Prosper combines the money and issues the loan. Individuals are then paid both interest and principal monthly based on interest rate and their percentage of the loan.

For the borrower, peer to peer lending works exactly like any other type of loan. You fill out an application and usually receive money in your bank account within a week. You make monthly payments on the loan, usually from three- to five-years. The loan and payments are reported on your credit to help increase your score.

peer to peer loans application process
Peer-to-Peer Loans Application Process

How to Get a Peer-to-Peer Loan with Bad Credit

The reason why I say peer to peer lending is becoming the best way for people to get a loan is because it’s much easier to get than a traditional bank loan.

Banks and credit unions have strict lending policies so they can resell the loan to an investment broker. These policies lock out a lot of good people trying to get the money they need. Since peer-to-peer loans are directly between investors and borrowers, credit score requirements are much lower and relaxed.

That means more people can get a peer to peer loan than the old way of begging at the bank.

Some other advantages of peer-to-peer loans over other types of loans include:

  • Since p2p lending sites don’t have all the costs of running a bank, there are fewer loan fees with online loans.
  • Since peer to peer lending is between investors and borrowers, interest rates are lower than at a bank where everyone (investment brokers, investors and the bank) want to make a profit.
  • Peer to peer lending is completely online. No more running back and forth to the bank.

Getting an online loan through a peer to peer lending site is pretty easy. I’ve used three p2p loans over the last decade from several different websites.

  1. Click through to one of the peer-to-peer websites in the review below. I’ve used and recommend PersonalLoans.com
  2. Check your rate on a loan up to $35,000 with terms between three- and five-years. Checking your rate doesn’t affect your credit score. It’s like getting pre-approved for a loan.
  3. By law, the online lender has to show you all loan details before you accept. This means you’ll see monthly payment, interest rate and total interest paid before you have to make a commitment.
  4. If you accept the loan, you’ll enter information like employment, contact details and link your bank account.
  5. I’ve seen loans made within one day though most will take about two- to three-days with money deposited directly into your checking account.

There are a few tips you want to follow, especially if you’re trying to get a peer to peer loan on bad credit.

Shop your loan around on a few sites. Since checking your rate doesn’t affect your credit score, there’s no harm in checking it on a few peer-to-peer sites. You’ll make sure you get the best rate on your loan. It’s one of the reasons why I like PersonalLoans.com because the website shops your loan automatically to the lenders it works with in peer-to-peer, personal loans and even traditional bank loans.

Get started now, check your rate on a loan up to $35,000 – instant approval

You can play around with the loan terms to change the interest rate and monthly payment. Shorter-term loans of 36-months and lower loan amounts will usually get you a better interest rate. Stretching your loan out to five years will lower your payment but might cost a little more on the rate.

Make absolutely sure you can afford the monthly payment before you accept any loan. Just like bank loans, online loans go on your credit report and missed payments will hurt your score. These are unsecured loans so you don’t have to worry about losing your house or car if you miss a payment but it will still affect your credit.

Are Online Loans Safe?

I’ve been using online loans and peer-to-peer for more than a decade. One of the most common questions I get is, “Are online loans safe?”

I get it. It’s still a little scary to put your information online and trust internet financial companies.

Online loan sites like PersonalLoans, Lending Club and Prosper are all regulated by the same rules as the bank down the street. They’re required to use the highest-level of internet security to keep your information safe. They’re also required to keep all the records of your loan including all your payments, even after you pay off the loan.

Investors on peer-to-peer lending sites never see the borrowers’ personal information. The only thing they see is loan details and some credit information but they never see anything that could identify borrowers.

While peer-to-peer lending is safe, there will always be people out there waiting to steal your money. One of the most popular articles on the blog is a collection of personal loan scams and warning signs I’ve seen over five years of researching.

most common loan scams in america

The problem is in the fake companies set up to scam people out of their money with scam loans and fraud. That’s why it’s so important to choose legitimate peer to peer lenders you know can be trusted.

Best Websites to Get an Online Loan with Bad Credit

I’ve used several peer-to-peer lending sites and have researched dozens more for the blog. Finding the best website for your online loan is about knowing which specialize in the loan you need.

There are a few websites like PersonalLoans.com and BadCreditLoans that specialize in helping borrowers with low credit score. These websites partner with multiple lenders to shop your loan around and make sure you’re offered the lowest possible rate. They also use unique credit criteria to accept applications from borrowers that would get denied by other p2p sites.

On the other side of this are the websites that focus on higher credit score borrowers like SoFi. These lenders are able to offer lower rates because they only accept borrowers with an excellent credit history and low defaults. While it might be harder to qualify on these sites, I still recommend applying because the lower rate is worth it.

Remember, it doesn’t hurt your credit score to shop your loan around to a few websites.

Still another group of websites focuses on specific types of borrowers like college graduates. Upstart uses a special credit program that gives extra points to people with a bachelor’s degree or higher and paying off student loan debt. That means graduates can usually qualify with a lower FICO score than other borrowers.

Websites like Payoff specialize in borrowers with a specific type of debt, credit card debt in this case. Payoff only offers loans to consolidate and pay off credit card debt. With this model, it knows borrowers are paying down their debt instead of using the loan to buy more stuff.

Peer to Peer Lending SiteP2P Borrower FeesMinimum Credit ScoreLoan RatesNotes
Personal Loans
Click to Check Your Rate
5%5809.95% to 36.0%Three options including P2P Loans, Bank Loans and Personal Loans.
BadCreditLoans
Click to Check Your Rate
No Fees520Vary by stateNo fees and lowest credit requirements with p2p lenders.
Payoff
Click to Check Your Rate
2% to 5%6606% to 23%Specializes in loans to payoff credit cards. Low origination fee and no hidden fees or charges.
Upstart
Click to Check Your Rate
1% to 6%6206.25% to 30.0%Best for graduates and no credit peer loans.
SoFi Loans
Click to Check Your Rate
No FeesN/A but probably around 680 FICO5.99% to 16.49% (fixed rates)
5.74% to 14.6% (variable rates)
Low student loan refinancing rates.
Lending Club
Click to Check Your Rate
1% to 5%6405.95% to 32%Best combination of low fees and low rates.

Understanding which peer to peer lending website is best for your needs means a better chance at getting approved for a loan even with bad credit. You’ll get lower rates and monthly payments along with features that are designed specifically for you.

Credit Score for a Bad Credit Loan

Understanding which peer to peer loan sites specialize in bad credit loans will give you a better chance of getting approved…but it will only take you so far. Your credit score is the #1 factor in getting a peer loan and there is a cutoff point on scores.

We’ll look at that minimum credit score needed for a peer to peer loan but I don’t want you to think it will be impossible to get a loan if your score is below this point. If there is one thing I want you to get from this article, it’s that applying for a loan will not hurt your score and there’s no loss in trying.

good credit score and financial health
What Credit Score Do You Need for a Peer to Peer Loan?

If you apply for a loan on a few websites, the chances are really good that you’ll get an offer from at least one. Even if you get denied on all the websites, it won’t hurt your score and now you know you need to improve your credit score a little.

For most peer to peer sites, the minimum credit score is between 640 to 670 FICO. That is right around the cutoff for prime lending where banks will approve your application. Most p2p websites go a little below this score to help the people getting turned away by the banks and credit unions but they won’t go much lower.

Then there is another group of online lenders that will approve loan applications from borrowers with a 600 credit score or higher. These are usually the sites with specialized credit scoring programs that give certain borrowers extra points like graduates or veterans.

Finally there are the bad credit loan sites like PersonalLoans and BadCreditLoans, that will generally approve applications with scores as low as 540 FICO or higher. These lenders know they will see higher defaults on bad credit loans but they make it up through a higher volume of loans, reaching the millions of people shut out because of their credit score.

Unfortunately, if your credit score is below 520 FICO, it’s going to be difficult getting any type of online loan. Here is the process I recommend to boost your credit score fast and get a loan.

  • Pay off as much of your credit card debt as possible. This is the worst kind of debt and the one that hurts your score the most. Paying down your balances alone can bump your score 20 – 30 points higher.
  • Try getting a few of the bad marks or accounts wiped off your credit report. This involves writing the credit bureaus to contest a missed payment or other bad mark on your report.
  • Apply for a smaller loan with a shorter-term. You’re much more likely to get approved on a loan for a few thousand dollars with a one-year or 24-month payment term than a much larger loan. Getting a smaller loan and paying it off early is not only going to increase your credit score but lenders are much more likely to approve loans to repeat customers.

Click to shop your loan around and get the best rate possible

Peer-to-Peer Loans FAQ

Over five years running this blog and using peer to peer loans myself, I’ve seen several questions come up most often. These are the common questions everyone has about peer lending and that really help you understand the basics.

What would you suggest to borrowers who are trying to get a peer to peer loan funded?

For borrowers, it’s always smart to start out with a small loan, like in the $3,000 dollar range, pay that loan off over a period of a year or two, and then apply for a bigger loan the second time around. Lenders like to see an established payment history with large loans (all the way up to $35,000) having a much greater chance of being funded.

Can I get a personal loan with a 500 credit score?

A 500 credit score is deep into bad credit but doesn’t necessarily mean you can’t get a personal loan. Apply on a few of the bad credit loan sites but make sure you can afford the payment before you accept any loan. If you are denied a loan, you likely only need 30 or 40 more points on your credit score so focus on paying down credit card debt and disputing bad marks on your credit report.

Can I get a personal loan with a 660 credit score?

Yes! A 660 credit score is right at the cutoff for prime lending, the score at which banks and credit unions start lending to customers. It’s at this point that you’ll notice more offers for loans and credit cards because you’re breaking into that ‘good’ credit range.

How do I increase my credit score for a bad credit loan?

I share five credit hacks I used to boost my FICO by hundreds of points in this video but there are a few things you can focus on.

  • Pay down credit card debt. That might mean getting a debt consolidation loan now, to pay off your cards and increase your score. Then getting a loan for the rest of the money you need in a few months.
  • Get an increase in your borrowing limit. This sounds weird at first but makes total sense. By increasing your borrowing limit on credit but not using it, you’re lowering your credit utilization ratio. It’s an important measure in your credit score and can boost it by a few dozen points fast.
  • Change the reason you’re borrowing money. This won’t increase your credit score but using the ‘debt consolidation’ reason in loan applications usually means faster approval compared to other loans.
  • Don’t fill out traditional applications for a loan or credit card. Applying on peer to peer sites won’t hurt your credit but other types of loan applications get reported on your credit and can hurt your score.

What are the best peer to peer loan sites for really bad credit?

I’ve seen the highest approval rate for really bad credit from two websites, PersonalLoans.com and BadCreditLoans. There are other websites that approve bad credit loans but these have stuck out as most recommended by readers.

What is the easiest loan to get with bad credit?

If you’re struggling to get approved for a loan, there are three changes you want to make that will improve your chances.

  • Ask for a lower amount. Even if it’s only enough to get you through the next six months, getting a small loan and paying it off will help your chances getting a bigger loan.
  • Ask for a shorter-term. Lenders will approve a one-year loan before they’ll consider a 5-year term.
  • Change your loan purpose to ‘debt consolidation’. You can use the money for whatever you like but many investors only put their money in loans that are used for paying off other debt.
get peer to peer loan bad credit
How to Get a Peer to Peer Loan with Bad Credit

Peer to peer lending has opened up credit to millions of Americans since the financial crisis. Getting an online loan is no longer something only people with perfect credit can do. With an easy online process, now anyone can get a peer to peer loan even with bad credit. Understand how these websites work and how to use the process to get the money you need.

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Comments

  1. when u can go to a bank and get an interest rate of 4% it seam to me that all ur loan are of a high risk

    • Not everyone can get approved by a bank. That is kind of the point of P2P lending.

    • I do not know of any bank that extends an unsecured loan at 4%. You are probably thinking of a mortgage loan. The big difference is that the property is held as collateral, so if you default the bank gets your house. These p2p loans are uncollateralized, so there is more risk premium priced into the rate.

      • Not sure what you’re talking about with the 4% unsecured bank loan but yeah, I’ve never seen one with a rate that low. P2P loans usually start around 6% for 800+ credit scores and up to 36% for bad credit, which is the rate the investor gets after fees.

  2. This is a great breakdown of p2p lending. I am trying to get my husband on board and he has not been able to wrap his mind around the idea that you lend to MANY people, not just one, LOL. Now that we are debt free it is becoming increasingly important for us find places to park our money. I am trying to get him to join me in a p2p investment, so I hope this article will help!

  3. I’m interested but I’m in Canada. And there doesn’t seem to be many P2P opportunities here, if any. Would you happen to know how I can do this in Canada? Or any companies doing that here?

    • I feel your pain Jaymee. Until recently, regulations kept me out of p2p investing in my home state of Iowa.

      In Canada, p2p lending is still restricted to ‘accredited’ investors with incomes above $250,000 a year. Grouplend and Borrowell are the two largest platforms so you might check them out if you meet the investor requirement.

      Thanks for the comment.

  4. Avatar Grant Parks says

    My returns were bad until 2009 also and have been climbing since. For the last 4 years, it’s been 9.11%, 10.95, 15.12 and 15.39. I’ll take 15% interest all day! I started analyzing my historical loan data and set up a great filter which includes some criteria that most people wouldn’t think matters — I only say that because when I mention it, they say “Oh I wouldn’t have thought that would matter.”

    • Absolutely right Grant. People don’t realize that just a few tweaks to their peer to peer loan investing criteria can lower risk and increase their return. Even more, most peer lending sites let you put the criteria on auto-pilot to automatically invest in only those loans. It’s a great opportunity that too few investors are using right now.

    • Hi Grant,

      Would you mind sharing with me what some of those requirements are? I’m new to p2p lending and looking for all the advice I can get.

      Thanks!

      Kristina

  5. I want to tweak my loans and maybe start selling them after the first year or so. Most loans are sold before they mature. This strategy may help minimize chargeoffs. Does anyone care to share your thoughts or experience?

    • Isaiah, peer loans as an investment are best held to maturity. There isn’t much demand for older loans, really only through a couple of platforms, so you take a big hit trying to sell them. Changes in interest rates can also affect the value of the loan if you try selling it early. Charge-offs are going to happen and most will happen within a year or two of the origination so selling your loans early just means you get hit with the early charge-offs and don’t get the interest from the ones that could have been paid off.

  6. hi I was curious if I started with A 100 and split it 4 ways 25 a piece and if I don’t default on any and reinvest all profit would this a good way of starting another sumpliment income that comes in monthly

    • Hi Kyle,
      Starting with just four peer loans is risky because it leaves you very exposed to each. If just one loan defaults, you’re down 25%. Best if you can start with at least 100 loans…but this isn’t always possible for most p2p investors. I would save up until you can invest in at least 20 peer loans and then only invest in good credit categories. Reinvest proceeds and keep adding to your account until you are up to at least 100 loans, then you can start investing in riskier categories for higher returns. Make sure it is in an IRA account so you do not get taxed on interest.

      • How do you invest in p2p inside your IRA? Is this a solo IRA? I have an IRA with TD Ameritrade and I don’t think they would let me do that.

        • Hi Karen, to invest in peer lending with an IRA you have to be on a website that has p2p investing. Most of the online investing sites don’t have peer loans as an investment option so you need to open up an account with Lending Club. The upside is that they are offering cash back on new IRA accounts.

          • If it’s an IRA does that mean returns can’t be liquidated?

          • Any funds in your IRA can be transferred to another IRA later if you decide you want to move some money from p2p investing to another type of investment. I’ve done this moving money from my Lending Club account to Ameritrade. They do have to be moved to another IRA though and cannot be used until you’re 59 1/2 without the 10% penalty as it is with retirement accounts. You can also set up a regular taxable account with Lending Club with money that can be withdrawn and used whenever.

  7. Hi Kyle,

    I find the information on your site very informative. I heard about P2P loans probably a couple of years back and really wanted to invest in this type of venture. However it seems Lending Club nor Prosper allows residents from NC to invest. Do you know of any other reputable P2P sites I could try and also ones where the income requirement is less than $70,000? I didn’t even think that an income requirement would be that high. There are a lot of us who don’t make that much. I make about $30,000 less than that, so not sure if it’s possible for me to become an investor making what I make. Any help you can offer will be much appreciated.

    • Hi Mia,

      I just checked and Lending Club investing isn’t open yet in North Carolina but you are allowed to trade peer loans through a Foliofn account. This is where you invest in peer loans you buy from other investors instead of directly funding the loans on Lending Club. The advantage with a Foliofn account is that you can invest in loans with less time until payoff and can even get a better return than the original investor. There is no income minimum to investing in peer loans on Foliofn so you shouldn’t have a problem.

      • Thank you so much for this information and responding in a timely manner. Do you know if Prosper offers the same option? I will look into doing the Foliofn account, as I am looking to get started right away.

  8. OK, I’m all signed up. Do you have any strategies I could utilize in purchasing notes? I’m trying to educate myself as much as possible before diving in here. Don’t want to take any huge hits if I can help it. I know this may be trial & error for me. Have you ever purchased notes before? I appreciate any help you can give to a newcomer.

    • Investing in older p2p loans is a lot like investing in new loans. Set the criteria on which you want to invest; time horizon, loan categories and so forth. Check out this post on the best lending club investing strategies for different types of investors.

      Stick with shorter-term loans in safer categories that have not missed a payment before going into riskier peer loan investing.

  9. Thank you for that interview! So say you are debt free and I give you 10k. How are you going to invest it! I’m asking you this because I’m debt free and looking for a way to invest 10k. P2P seems like the best way to get more bang for my $. Thanks again!

    • Congrats on getting to debt free Dustin. How you invest depends on your age and retirement goals. I put together a series of articles on how your investments change as you age at http://mystockmarketbasics.com/easy-guide-investing-by-age/

      That said, I would put about $2,500 in peer lending investing on Lending Club. That will allow you to invest in 100 loans with $25 each for instant diversification and cash flow. Set your p2p account to automatically invest in new loans each month and let it go on its own. Lending Club is offering a cash bonus for new retirement accounts now.

  10. Fantastic article, many great points.

    I got into p2p lending a little over a year ago and with my strategy I have had zero defaults and I’m maintaining an 11% annual return. We will see how things go when I hit that 3 year mark.

    A few of my strategies that seem to work for me as follows:
    1. I never issue a note that has more than 36 months to mature.
    2: I only issue notes for debt consolidation.
    3: Credit scores mean little to me if it is above 680 because I look at how much money the borrower makes more than any other criteria, if they make less than 20% per month of the monthly payment it’s a no-go.
    4: I cherry-pick all of my notes.
    5: They must have a mortgage, no renters.
    6: They must have at least 3 years with their current employer.

    I have a few other strategies, but those are my main focus points. If you are maintaining at least an 8% return or higher you are doing well IMHO.

    • Excellent criteria for p2p investing Adam. A lot of peer loan investors have been reporting slightly lower returns over the past year so your 11% is excellent. Thanks for the comment.

  11. Should I only invest out of an IRA account? What are your thoughts on using money from checking or savings account?

    • Hi Joe,
      You can put money in your p2p investing account with money from anywhere; checking, savings or another IRA account. The important point is that your peer lending investments be an IRA account or some other tax-advantaged account like a Roth or SEP. This will make the income you receive from investing in loans tax-free until much later.

  12. You mentioned that you could invest funds from any kind of account (checking, savings, or another IRA account).

    Does this include funds coming out of an ABLE Savings Account for those with disabilities without it jeopardizing their disability benefits as long as their annual contributions and total income caps are within limits?

    • Yvette, I think you might have misunderstood. It doesn’t say you can invest in p2p loans from any kind of account but into any kind of account (regular investing, IRA, ROTH). As far as I know Lending Club only receives money for investing through checking or wire transfer. Not sure of all the rules around p2p investing for those on benefits. The interest from peer loans investing is counted as income so you’ll need to account for that to keep benefits.

  13. I have been investing in a minor way under $1000 for about 5 years. I had returns of about 11%. This year I finally went heavy investing over $30,000.
    I am currently at 12% return which I am very happy with. I use Lending Club. I constantly use Folio investing (trading format for lending club). I sell my notes 100% of the time. I think it is especially useful to sell off bad debt. I also constantly have my notes for sale. Ranging from 2%-6% depending how attractive the note is. Keep in mind when selling on folio investing each transaction is 1%. So is you sell a note for $25 you will get $24.75. This tool can also be very beneficial if you ever need to liquidate the account. Give a 2-3% discount and it will liquidate very quickly.
    I like this form of investing because of the cash flow. You can create a second income. On 30,000 you will create about $1100 monthly cash flow with about $450 being interest. That is what I’m seeing now. I’m hoping to ramp up over $100,000 in the next 12months. A safety net, a way to eventually retire early, supplemental income, or what ever you want it to be. I have been very happy

    • Some great ideas Derik. I’ve been investing on Lending Club for years but have never bought or sold any of the loans on folio. Are there any criteria you use for deciding when to sell late p2p loans? When you say you have the loans for sale on 2% to 6%, does that mean you mark up the price for a premium of that amount?

    • Derik,

      Are you still investing in P2P loans?

  14. Avatar Phil Yenovkian says

    Prosper openly tells borrowers that after onoy 120 days they charge off any loans in default. Since they bare no risk when a borrower stops paying, they have little to gain by aggressively going after a borrower in default. This single aspect of their program makes it too risky for many lenders and I now included myself in that group. One bad loan and you will be in the red with Prosper.

    • Defaulting loans are a drag on a p2p investing portfolio but it isn’t quite as you describe. Prosper and Lending Club outsource their loan collections and do have a vested interest in seeing bad loans collected. Investors leave if default rates rise so the peer lending platforms do want to see late loans collected.

      You will always have bad loans, even in a portfolio of traditional corporate debt. In peer to peer lending investing, as with any investment, you need to diversify across different risk categories and other criteria. Sure, if you’re only in 20 loans then a default will wipe out 5% of your portfolio. Invest across at least 200 loans though and each loan is only half a percent of your investment. Earn an average 10%+ on the other loans and you more than make up for any defaults.

  15. Avatar Cherie Simmons says

    Hi Joseph!
    Hope this page is still active!
    Great feedback and advice. So I have just set up my lending account with lending club invested 1,000$, I see that the minimum to put toward each loan is $25. But I was wanting to invest more to (ideally) get higher return and quicker payouts. I’m still new to this so would like your advice on what do you think about me putting $100 toward 10 loans? Would that be a good strategy starting out, or should I mix up the loan amounts and have smaller loan amounts, so that I can have more loans invested in?

    • Hi Cherie. I would stick with the lower amount per loan until you have enough to invest in at least 100 loans. So until your investments reach at least $2,500 then invest $25 per loan. The interest rate you earn and how fast your money grows doesn’t depend on how much you put in each loan, you’ll get a certain interest rate on each loan. The important point is to spread your money out over at least 100 to 200 loans so a couple of defaults won’t matter as much.

      • Avatar Cherie Simmons says

        Okay,
        Thanks for clarifying that for me, I have a better understanding now of how the interest rates work, and that is what I initially thought to do. More loans will be better starting out, than confining to fewer loans- which could leave me vulnerable to defaults.

  16. Are there any options for me to invest? I am a Washington state resident but do not meet their requirements – “an Annual Gross Income of at least $70,000; AND (ii) a Net Worth of at least $70,000; OR I have a Net Worth of at least $250,000.” I don’t foresee myself meeting that anytime in the near future (if ever).

    • Are you sure you’re looking at Washington state’s Lending Club requirements? I see that California has a suitability requirement of $70,000 income or net worth for investing in p2p loans but I couldn’t find any for Washington. If you aren’t able to invest on Lending Club, you might try Folio which is just a secondary market for Lending Club loans (where people buy and sell their Lending Club loans).

  17. So is lending club or prosper a better choice?

    • Hi Sidney, I would go with Lending Club. I haven’t invested on Prosper for a while but it was starting to fall behind badly last year. They do not have the loan growth needed for investors and I like the Lending Club platform better.

  18. Hi Joseph, fantastic article. I am UBER new to the game here but would love your opinion:

    I’m considering getting into P2P and I see a lot of people are starting with small investments of $1,000 to $2,500. Would you argue for or against starting off with a bigger investment of say $5,000 right off the bat?

    • Thanks Montana, How much you invest really depends on your total portfolio in stocks, bonds and other investments. I wouldn’t put more than 25% or so in peer to peer loan investing. That just helps diversify your risks and make your overall wealth less risky when it’s spread out among stocks, bonds, real estate and p2p. For example, if you have a total of $50,000 to invest in all assets you might consider $10K or so in p2p.

  19. Hi Joseph,

    I’m trying to begin in investing and I like the idea of P2P. Help me understand the short and long terms benefits of this? Canyou actually make revenue on an annual basis?

    • Hi Chase. I like p2p investing for two reasons, diversification and the returns.
      1) Since it’s debt, it will be less volatile than stocks so will help protect wealth during a stock crash. There will be defaults but you’ll never lose the kind of money like when stocks fall 20% to 50%
      2) I’ve booked solid returns around double-digits since starting on Lending Club. Even on a little higher defaults, you can easily book 7% to 8% returns every year.

  20. Avatar Josh Waddell says

    Joseph, if you are reinvesting every cent you make off of P2P then when do you spend the passive income. Is this strictly to build up for when you retire or to have money each month to spend?

  21. Fantastic questions and answers, I am 57 years old and running behind in my retirement nestegg, have about $200k in my 401k, about $80k in my savings account, about 7 months ago I invested $2k in real estate crowdfunding (fundrise.com) and another $2k in P2P in lendingclub. After reading this page I realize I should put the returns of P2P into the lendingclub offred IRA, I think I will go with a ROTH IRA, what do you think? how much do you think I shoul dbump my investment in LendingClub and/or eREIT fundrise.com ? I hate seeing the money in my saving account depreciate every month as the interest in a money market is pathetic.

    • I have my Lending Club account set up as an IRA, saves a lot of money every year in taxes. I prefer p2p investing over eREITs but there are so good benefits to both. I currently have about 10% of my money in p2p investing and 20% in real estate but that is split between REITs, crowdfunding property and direct investment.

  22. Avatar Jeremy Hargraves says

    Hello Joseph,

    Starting out would I see a good return on 1,000 40 loans? Or should I do 2,000 80 loans? It’ll be long term. I wanted to start with 10,000 400 loans. What do you suggest? Also I could set it up so the interest goes into an IRA account?

    • I would go with at least the 80 loans to start so you have a little better diversification. As far as doing $10K, it depends on the size of your overall portfolio (stocks, bonds, real estate, etc). I wouldn’t have more than 20% or so in p2p loans. Not necessarily because they’re high risk or anything but just to make sure you keep that diversification.

  23. What happens during defaults? I get that you as the lender are kind of boned, but what about collections/ the company itself facilitating the meeting (what is their role?).

    Obviously, a basket of smaller loans in various categories would be more apt. to yield returns opposed to 10k to bad credit @ high yield, but what’s the process here when it does sour? Does the company itself handle the collections agents/process as part of its end of the facilitation or is the lender going to have to make deals with agencies themselves/sell the debt for pennies on the dollar? Default is the risk here, are you left to cross the t’s and dot the i’s on the wild world of law on this or have they managed to make it a drive-thru for you to earn their keep of the rate?

    • Lending Club has a process for collecting on late loans and defaults. They first try to work with the borrower to collect or put them on a payment plan. If the loan goes further into late, it’s passed to a collection agency. This sometimes recovers some of the loan proceeds, about one-in-five loans that reach this stage are recovered.

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